The economy's black underside

ByJay Dubashi, Special to The Christian Science MonitorJuly 30, 1982

New Delhi
— An official of a chamber of commerce in New Delhi recently went out house-hunting in the capital. He was about to clinch the deal when the would-be landlord told him that he would want half the rent in ''black,'' that is, under the table, with no questions asked and no receipts given.

The deal promptly fell through, but the house, which was going for about 5, 000 rupees (about $500) a month - more than the monthly salary of the highest rank in the bureaucracy - was just as promptly snapped up by a businessman who has made a killing in exports and can get by nicely without showing the rent in his books.

Many businessmen in India launder their account books and, in fact, keep two sets of accounts, sometimes three: one for themselves, one for the government, and one for their partners. There are thus two economic systems at work: the legitimate, ''white'' economy on which the government bases its budget and plans future developments, and the unofficial but booming ''black'' economy. Its size is also anybody's guess. Estimates range from about 15 percent of the gross national product (about 1.1 trillion rupees ($110 billion) last year) to almost half the GNP.

In certain sectors, as in real estate, the black economy is said to have overtaken the white. In Bombay, which has seen a 10-fold rise in real estate prices in the last five years, between 60 and 75 percent of the price of an apartment often has to be paid under the table, in hard ''black'' cash.

The roots of most economic problems in India are primarily social and political, rarely purely economic. The main reason for the generation of black money is that people want a higher standard of living than is possible under the white system. For a period of about 15 years after independence, coinciding more or less with Jawaharlal Nehru's regime as prime minister, India went through extreme austerity, as enjoined by Mohandas Gandhi and other father figures of the struggle for freedom.

This was a period of tremendous development activity in construction of dams, power stations, steel plants, roads and harbors, and whole new towns, like Chandigarh in the north and Neyveli in the south. Most of these projects were long on construction and short on immediate yield. As expenditures mounted, prices began to rise, with the result that the government slapped on price controls more or less across the table. This has made it virtually impossible for consumers to buy many products off the shelf.

The waiting period for a car was often as long as seven years and for a refrigerator, two years. A black market soon developed for most industrial products, the premium varying from product to product, depending on the demand-supply situation.

From time to time, the government taps the black economy directly, as it did in 1965 and 1975 when general amnesties on undisclosed incomes were declared. The 1975 amnesty brought in 7 billion rupees. The government went one better in fiscal 1982, floating no-questions-asked bearer bonds which mopped up 10 billion rupees. This is perhaps about 2 percent of the total black economy, a drop in the ocean, but government officials seem quite happy. The bonds circulate as freely as currency notes and are currently quoted at a discount, because of the recession.

It is said that high personal income taxes are partly responsible for the growth of black money, but this is not true. Total direct tax collections account for only 30 billion rupees, about 3 percent of GNP.